– Currency Wars Often Lead to Trade Wars … Which In Turn Can Devolve Into Hot Wars (ZeroHedge, Feb 8, 2013):
Currency War ? Trade War ? Hot War?
According to numerous high-level insiders, the global currency war is accelerating:
– Currency Wars Often Lead to Trade Wars … Which In Turn Can Devolve Into Hot Wars (ZeroHedge, Feb 8, 2013):
Currency War ? Trade War ? Hot War?
According to numerous high-level insiders, the global currency war is accelerating:
– Taleb On “Skin In The Game” And His Disdain For Public Intellectuals (ZeroHedge, Jan 26, 2013):
Nassim Taleb sits down for a quite extensive interview based around his new book Anti-Fragile. Whether the Black Swan best-seller is philosopher or trader is up to you but the discussion is worth the time as Taleb wonders rigorously from the basic tenets of capitalism – “being more about disincentives that incentives” as failure (he believes) is critical to its success (and is clearly not allowed in our current environment) – to his intellectual influences (and total disdain for the likes of Krugman, Stiglitz, and Friedman – who all espouse grandiose and verbose work with no accountability whatsoever). His fears of large centralized states (such as the US is becoming and Europe is become) being prone to fail along with his libertarianism make for good viewing. However, his fundamental premise that TBTF banks should be nationalized and the critical importance of ‘skin in the game’ for a functioning financial system are all so crucial for the current ‘do no harm’ regime in which we live. Grab a beer (or glass of wine, it is Taleb) and watch…
Via Redmond Weissenberger of the Ludwig von Mises Institute Of Canada,
A must see interview with Nassim Taleb
Nassim Nicholas Taleb is a former trader and hedge fund manager, a best-selling author, and a ground-breaking theorist on risk and resilience.
Taleb drew wide attention after the 2007 publication of The Black Swan: The Impact of the Highly Improbable, which warned that our institutions and risk models aren’t designed to account for rare and catastrophic events. Among other things, the book cautioned that oversized and unaccountable banks using flawed investment models could bring on a financial crisis. He also warned that the government-sanctioned housing finance agencies, Fannie Mae and Freddie Mac, were sitting on a “barrel of dynamite.”
One year after The Black Swan was published, a global banking crisis was brought on by the very factors he identified.
– The Coming Debt Limit Drama: Government Wins, We Lose (Ron Paul, January 21, 2013):
Last week President Obama bluntly warned Congress that he will not negotiate when it comes to raising the statutory debt limit. If Republicans attempt to use a debt ceiling vote to win concessions on spending from the White House, Mr. Obama threatens simply to raise the limit by executive order or other unilateral action.
This is business as usual in Washington. Democrats literally do not believe we have a deficit and debt problem, and reliably propose greater borrowing and spending. Republicans talk a good game when it comes to government debt, but have no credibility to argue against deficits or abuses of executive power. Brinksmanship ensues, and ugly compromises are reached at the 11th hour. We all lose as the endless borrowing and money printing further erode our dollar and our economy.
From the article:
“The US annual budget deficit has almost tripled under Obama, from $450bn in 2008 to $1,200bn this year.”
“America’s national debt is now around $16,000bn, two-thirds higher than when Obama was first elected. In 2008, US government debt was 70pc of GDP. Now it is 102pc.”
“Debt growth at that pace simply cannot go on.”
“If fiscal and monetary stimulus worked, Japan wouldn’t have spent the past 20 years in and out of recession and now be shouldering a debt to GDP ratio of 250pc.”
“If printing money worked, Zimbabwe would be in the G7.”
– The US ‘cliff’ – one small part of a huge debt crisis (Telegraph, Dec 29, 2012):
So here we are, at the turn of the year, with the global economy tottering on the edge of America’s fiscal cliff.
What’s kept springing to my mind over the holiday season is the final scene of The Italian Job – the iconic 1969 original, not the tacky 2003 remake.
“Hang on a minute, lads,” says heistmaster-in-chief, Charlie Croker, as he and his merry band of crooks balance precariously in a bus on the edge of an Alpine cliff. “I’ve got a great idea.”
The Italian Job’s cliff-hanger finale is all make-believe. A brilliant film ends, we marvel at Michael Caine’s acting genius, the credits roll and then we get up and make some tea.
Real-world predicaments aren’t so easy.
– Top Ten Reasons Why Fiat Currency Is Superior To Gold (Or Silver) Money (The Daily Capitalist, Dec 27, 2012):
By John Butler, on December 27th, 2012
In the spirit of the holidays and hope for a more prosperous 2013, I thought my readers might appreciate a little humour to partially offset the relentless doom and gloom associated with the Amphora Report. So please, don’t take this edition too seriously. But if you happen to stumble across a ‘paperbug’ or two over the holidays, perhaps you could share some of the points made here. Humour sometimes helps people realise just how hopelessly misguided they are. Cheers!
Number 10: There Is Not Enough Gold (Or Silver) In The World To Serve As Money
Let’s begin with the obvious. We know that central banks the world over have printed money at exponentially growing rates for years. There is now so much paper and electronic money floating around the world that gold (or silver) can not possibly be expected to keep up. You can’t print gold, after all, you need to find it, dig it out of the ground, refine it, etc, a hugely expensive and time-consuming process which practically ensures a stable rather than exponentially growing supply of the stuff.
– Marc Faber: “Paul Krugman Should Go And Live In North Korea” (ZeroHedge, Dec 13, 2012):
If there is one thing better than Marc Faber providing a free, must-watch (and listen) 50 minute lecture on virtually everything that has transpired in the end days of modern capitalism, starting with who caused it, adjustable rate mortgages, leverage, why did the Fed let Lehman fail, why was AIG bailed out, quantitative easing, Operation Twist, where the interest on the debt is going, which bubbles he is most concerned about, a discussion of gold and silver, and culminating with his views on a world reserve currency, is him saying the following: “The views of the Keynesians like Mr. Krugman is that the fiscal deficits are far too small. One of the problems of the crisis is that it was caused by government intervention with fiscal and monetary measures. Now they tells us we didn’t intervene enough. If they really believe that they should go and live in North Korea where you have a communist system. There the government intervenes into every aspect of the economy. And look at the economic performance of North Korea.” Priceless.
50 minutes of Faberian bliss:
YouTube Added: 02.11.2012
By Mike Stathis
Mike Stathis holds a Master’s of Science in biological chemistry and biophysics from the University of Pennsylvania and was formerly a National Science Foundation research fellow at U.C. Berkeley. Mike serves as the Chief Investment Strategist of AVA Investment Analytics. As the only expert who predicted the financial apocalypse in detail, Mike has been a valuable source of guidance for investors, helping them to navigate the real estate and banking crisis, as well as the resulting global economic collapse. The accuracy of his predictions has positioned him as one of America’s most insightful and creative financial experts. He is the author of America’s Healthcare Solution, The Wall Street Investment Bible, America’s Financial Apocalypse, Cashing in on the Real Estate Bubble, America’s Financial Apocalypse, and The Startup Company Bible for Entrepreneurs.
From the article:
“Washington does not want Americans to understand the real economic problems facing their nation because it’s all about maximizing corporate profits at any expense, as one would expect from a fascist government. This is specifically why profits have remained near record-highs throughout the current recession, now entering its 59th month.”
– The truth about America’s jobless rate (PressTV, Oct 30, 2012):
In many respects, much if not all of the economic gains made in the United States from the past decade have been wiped out due to Wall Street malfeasance. Looking forward, I expect America to lose at least another decade.
While some of the economic turmoil is certainly due to the biggest real estate collapse in US history, a much larger portion is the result of the weak job market which is likely to persist for a number of years.
Although the real estate market appears to have bottomed, you should not expect anything other than a very gradual rise from here. In the absence of bubble conditions, the rate of real estate appreciation generally tracks that of inflation.
The biggest lift to the real estate market would come from lasting improvements in the job market. Thus, it is important to identify the real reasons for the persistently high unemployment rate so that adequate solutions can be designed. If the factors accounting for the continued weakness in the labor market are not addressed, America stands a good chance to lose much more than a decade.
‘The Bernank’ is just a meaningless puppet.
– David Einhorn Explains How Ben Bernanke Is Destroying America (ZeroHedge, Oct 26, 2012):
David Einhorn knocks it out of the park with his very first statement during today’s Buttonwood Gathering, in a segment dedicated to one thing only: explaining how the Fed’s policies are not only not helping the economy, they are now actively destroying this country.
“Sometimes you have to look at what is the base assumption. because sometimes you have a groupthink around the base assumption and everybody agrees to the same thing and acts reflexively and doesn’t really challenge what is going on. I think we have reached that point with the monetary policy. The assumption is that if you want the economy to improve, if you want more jobs, if you want more consumption, what we need is ever-easing monetary policy. My point is that if one jelly donut is a fine thing to have, 35 jelly donuts is not a fine thing to have, and it gets to a point where it’s not a question of diminishing returns but it actually turns out to be a drag. I think we have passed the point where incremental easing of Federal policy actually acts as a headwind to the economy and is actually slowing down our recovery, and I am alarmed by the reflexive groupthink of the leaders which is if we want a stronger economy, we need lower rates, we need more QE and other such measures.”
And that, in a nutshell is it: everything else follows.
– Quote Of The Day: QE3 Should Have Been “More Stronger” (ZeroHedge, Sep 14, 2012):
A $4 trillion Fed balance sheet in 15 months (40% increase) and guess who is not happy. Yup, you got it.
Nobel-prize winning economist Paul Krugman said that the third round of Federal Reserve asset purchases announced yesterday may be too small of a stimulus for the struggling U.S. economy.
The Princeton University economist, speaking at an event in Sao Paulo today, said that the Ben S. Bernanke’s pledge to buy $40 billion of mortgage debt a month could’ve included a commitment to maintain the asset purchase program for an extended period of time or until the unemployment rate falls to a targeted level.
“The change in tone is important but I would have liked a more stronger [sic] statement,” Krugman said. “It leaves things a bit unclear.”
When one hears such brilliance, what can one say but… Krugman.
And as a reminder…
– This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied – The Sequel (ZeroHedge, July 19, 2012):
Two years ago, in January 2010, Zero Hedge wrote “This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied” which became one of our most read stories of the year. The reason? Perhaps something to do with an implicit attempt at capital controls by the government on one of the primary forms of cash aggregation available: $2.7 trillion in US money market funds. The proximal catalyst back then were new proposed regulations seeking to pull one of these three core pillars (these being no volatility, instantaneous liquidity, and redeemability) from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal would give money market fund managers the option to “suspend redemptions to allow for the orderly liquidation of fund assets.” In other words: an attempt to prevent money market runs (the same thing that crushed Lehman when the Reserve Fund broke the buck). This idea, which previously had been implicitly backed by the all important Group of 30 which is basically the shadow central planners of the world (don’t believe us? check out the roster of current members), did not get too far, and was quickly forgotten. Until today, when the New York Fed decided to bring it back from the dead by publishing “The Minimum Balance At Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market FUnds“. Now it is well known that any attempt to prevent a bank runs achieves nothing but merely accelerating just that (as Europe recently learned). But this coming from central planners – who never can accurately predict a rational response – is not surprising. What is surprising is that this proposal is reincarnated now. The question becomes: why now? What does the Fed know about market liquidity conditions that it does not want to share, and more importantly, is the Fed seeing a rapid deterioration in liquidity conditions in the future, that may and/or will prompt retail investors to pull their money in another Lehman-like bank run repeat?
Here is how the Fed frames the problem in the abstract:
– The Ultimate Krugman Take-Down (ZeroHedge, July 9, 2012):
Forget Ali – Frazier; ignore Santelli – Liesman; dismiss Yankees – Red Sox; never mind Silva – Sonnen; the new undisputed standard by which all showdowns will be judged happened in Spain over the weekend. During a debate on Europe’s crisis, Pedro Schwartz (a mild-mannered Spanish ‘Austrian’ economics professor) took on the heavyweight Paul ‘I coulda been a Fed Chair contender’ Krugman, and – in our humble opinion – wiped the floor with his Keynesian philosophy. From the medicinal use of more debt to fix too much debt, to the Japanization of world economies and the demand-side bias of every- and any-thing – interested only in the short-term economic growth; the gentlemanly Spaniard notes, with regard to the European crisis, the fact that “Keynesians got us into this mess and now we have to sacrifice our principals so that they can get us out of this mess”. Humble and generous in his praise – though definitively serious with his criticism – Schwartz opines: “Often Nobel prize winners are tempted to pontificate on matters that are outside the specialty in which they have excelled,” noting “the mantle of authority whereby what ever they say – whether sensible or not – is accepted with resignation from some and enthusiasm by others.” Krugman’s red-faced anger is evident at the conclusion as he even refused to shake Schwartz’s hand after the debate.
For 15 minutes of both education and entertainment – this is as good as it gets…
- Starting from around 35:00 the Spanish professor praises and criticizes in a thoughtful and gentle tone
- At around 39:00, he addresses the demand-side description of the world
- Krugman’s less-than-happy response (which sparks quite a rowdy argument) begins around 48:20
– ‘Gold Bullion or Cash’ Shows Buffett, Roubini, Krugman Mistaken; Faber, Rogers, Bass, Einhorn, Gross Correct (ZeroHedge, Feb. 25, 2012)
– Letter to George Washington, Regarding Paul Krugman (Gonzalo Lira, August 16, 2011):
I wrote a letter to George Washington, the pseudonym for a well-known finance and economics blogger, with regards to a blog post he wrote on August 15.
The letter might sound a bit like score-settling—but there is a serious point to it, a point that applies to both the Left and the Right. So be patient.
Here is my letter to him in full, with a few light editorial touch-ups:
It’s been so long!
I’ve been skiing like a madman down here in Chile—but I did catch something you wrote, which I’d like to comment on, now that a blizzard has hit the slopes and I’m stuck inside with not much to do.
You wrote a post yesterday, picked up by Zero Hedge and others, pointing out that Paul Krugman is advocating war as a fiscal stimulus solution.
Must-read! Don’t miss to take a close look at the members of the the Group of Thirty!
When Henry Paulson publishes his long-awaited memoirs, the one section that will be of most interest to readers, will be the former Goldmanite and Secretary of the Treasury’s recollection of what, in his opinion, was the most unpredictable and dire consequence of letting Lehman fail (letting his former employer become the number one undisputed Fixed Income trading entity in the world was quite predictable… plus we doubt it will be a major topic of discussion in Hank’s book). We would venture to guess that the Reserve money market fund breaking the buck will be at the very top of the list, as the ensuing “run on the electronic bank” was precisely the 21st century equivalent of what happened to banks in physical form, during the early days of the Geat Depression. Had the lack of confidence in the system persisted for a few more hours, the entire financial world would have likely collapsed, as was so vividly recalled by Rep. Paul Kanjorski, once a barrage of electronic cash withdrawal requests depleted this primary spoke of the entire shadow economy. Ironically, money market funds are supposed to be the stalwart of safety and security among the plethora of global investment alternatives: one need only to look at their returns to see what the presumed composition of their investments is. A case in point, Fidelity’s $137 billion Cash Reserves fund has a return of 0.61% YTD, truly nothing to write home about, and a return that would have been easily beaten putting one’s money in Treasury Bonds. This is not surprising, as the primary purpose of money markets is to provide virtually instantaneous access to a portfolio of practically risk-free investment alternatives: a typical investor in a money market seeks minute investment risk, no volatility, and instantaneous liquidity, or redeemability. These are the three pillars upon which the entire $3.3 trillion money market industry is based.
Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to “suspend redemptions to allow for the orderly liquidation of fund assets.“ You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA’s latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was “absolutely” safe money, a back office person will get back to you saying, “Sorry – your money is now frozen. Bank runs have become illegal.“ This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous “extraordinary circumstances” arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well – sorry, you are out of luck. It’s the law.
A brief primer on money markets
A very succinct explanation of what money markets are was provided by none other than SEC’s Luis Aguilar on June 24, 2009, when he was presenting the case for making even the possibility of money market runs a thing of the past. To wit:
Money market funds were founded nearly 40 years ago. And, as is well known, one of the hallmarks of money market funds is their ability to maintain a stable net asset value – typically at a dollar per share.
In the time they have been around, money market funds have grown enormously – from $180 billion in 1983 (when Rule 2a-7 was first adopted), to $1.4 trillion at the end of 1998, to approximately $3.8 trillion at the end of 2008, just ten years later. The Release in front of us sets forth a number of informative statistics but a few that are of particular interest are the following: today, money market funds account for approximately 39% of all investment company assets; about 80% of all U.S. companies use money market funds in managing their cash balances; and about 20% of the cash balances of all U.S. households are held in money market funds. Clearly, money market funds have become part of the fabric by which families, and companies manage their financial affairs.
– Dubai World Unit Faces Default Test Monday With Bond Payment (Wall Street Journal):
DUBAI (Zawya Dow Jones)–Debt-laden Dubai World’s unit Jebel Ali Free Zone Authority, or Jafza, faces on Monday a coupon payment on a 7.5 billion U.A.E dirham ($2.04 billion) Islamic bond in the first key test of whether it will default.
– Abu Dhabi to aid Dubai “case by case”: official (Reuters):
ABU DHABI (Reuters) – Abu Dhabi, capital of the United Arab Emirates and one of the world’s top oil exporters, will “pick and choose” how to assist its debt-laden neighbor Dubai, a senior Abu Dhabi official said on Saturday.
“We will look at Dubai’s commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts,” the official told Reuters by telephone.
Nov 28 (Reuters) – Japanese financial institutions, including three major banks, face loan exposures of about 100 billion yen ($1.16 billion) in Dubai, the Nikkei business daily said.
– Dubai debt woes may hit U.S. property market (Reuters):
“This downturn has had more of a global impact,” said Tony Ciochetti, chairman of Massachusetts Institute of Technology’s Center for Real Estate in Cambridge, Massachusetts.
“Dubai may have to unload some very prestigious properties at distressed prices and this will drive the price of all commercial real estate lower,” wrote Richard Bove, a banking analyst at Rochdale Securities in Lutz, Florida.
Dubai or not Dubai — that is the question. Dubai’s sorta-kinda default (a state-owned enterprise seeking a rescheduling of its debts) is, by itself, not that big of a deal. But who else looks like Dubai? What kind of omen is this for the next stage in the financial crisis?
As far as I can tell, there are three ways to look at it — three stories, if you like, about what Dubai means.
First, there’s the view that this is the beginning of many sovereign defaults, and that we’re now seeing the end of the ability of governments to use deficit spending to fight the slump. That’s the view being suggested, if I understand correctly, by the Roubini people and in a softer version by Gillian Tett.
Alternatively, you can see this as basically just another commercial real estate bust. Either you view Dubai World as nothing special, despite sovereign ownership, as Willem Buiter does; or you think of the emirate as a whole as, in effect, a highly leveraged CRE investor facing the same problems as many others in the same situation.
Finally, you can see Dubai as sui generis. And really, there has been nothing else quite like it.
At the moment, I’m leaning to a combination of two and three. For what it’s worth (not much), US bond prices are up right now, suggesting that the Dubai thing hasn’t raised expectations of default.